Bear in mind that the option strike is at 20c. If the options...

Bear in mind that the option strike is at 20c. If the options are converted, sure there will be a small dilution of the shareholder register, but not of the overall financials, because the option conversion means another $900K in the kitty.

As an example, consider this larger dilution:

1,000,000 shares in ABC Pty Ltd @ $1, market cap is $1m.

Options at $1 strike are exercised being 100,000 shares.

The situation afterwards is that the company has 1.1m shares on issue, but they have an additional $100K in their bank account, so their market value of $1.1m is merely their old market cap ($1m) plus the cash at bank ($100K).

So increasing the share register by itself is not the concern here.

What is potentially negative dilution is if the options had an exercise of say 50c (from my above example). Then, the company increases their shareholder register by 10%, but only increase their value by 5% (because they only receive cash of $50K).

In a nutshell, if the options are converted at a strike just above the current sp, that's the best outcome for the company, because their cash at bank goes up, and dilution effects are cancelled out by the increase in net assets.

The other thing to bear in mind is that the options were offered to capital raise participants last year, which has the effect of not having decreased the CR price at the time. If the options hadn't been offered, it's likely that the CR would have had to have lowered their price to be fully subscribed (to say 11.5c instead of 12.5c) which would have resulted in more dilution in Feb 2014.

Shareholders should be hoping the share price gets above 20c, so that the options get exercised, the company raises another $900K, and that's not too bad considering they just raised money at 17c.

Finally, as Shumbi points out, we are talking a very small amount of the overall shareholder register. On a normal trading day, a 0.5c movement in the sp has more effect than the dilution effects of these small amount of options. The mining licence and offtake conversion are vastly more important than an option exercise of a very small amount of the register.